Analysts weigh in on Facebook: Where’s the ‘meh’ button?

Facebook shares, which rose 1 percent Tuesday ahead of the anticipated analyst talkathon today, are down nearly 3 percent to $32.13 as of this post. For those keeping score at home, of the 15 ratings analysts gave Facebook last night or this morning, 7 were “buy,” “outperform” or “overweight,” 7 were “neutral” or “hold,” and BMO Capital Markets started its rating at “underperform,” according to Reuters. The average analyst target for the share price is $37.71, right under the IPO price of $38, according to the Wall Street Journal.

In the wake of Facebook’s highly anticipated but problem-plagued initial public offering, investors are looking for additional insight into the company’s future prospects. Here are some key thoughts from analysts from the company’s underwriters — not exactly impartial, though the research divisions are supposed to operate independently — which till now had been subject to a 40-day quiet period after the Facebook IPO. The comments also come ahead of the company’s earnings report, which is expected in mid- to late July.

Although Citigroup analysts set a target price of $35 for the stock, they also said Facebook’s position in social networks is “almost unassailable,” according to MarketWatch. (Facebook claims it has 900 million users; Twitter said earlier this month that it has 140 million users; and Google+ most recently said 170 million users have “upgraded” to its service.) Other positive comments include that from Piper Jaffray’s Gee Munster, who called Facebook “one of the five most important companies in the Internet space.” The others are Apple, Google, Amazon.com and Microsoft.

What about advertising revenue? General Motors famously announced it would stop paying for Facebook ads right before the Menlo Park company’s IPO. But Barclays Capital analyst Anthony DiClemente wrote that advertisers remain interested in social media’s reach, according to MarketWatch. Last week, the Wall Street Journal reported that Ford Motor planned to increase its social-media efforts, especially on Facebook, and Coca-Cola said it expected Facebook to help drive sales. But BMO analyst Daniel Salmon said Facebook’s advertising outlook was why he rated the company “underperform.” He is concerned about the slowdown in user growth, which could affect ad sales.

Mobile remains the big question. We’ve mentioned on GMSV that Facebook itself had warned that with its users increasingly using their mobile phones to access the social network, it was worried about how to turn that into ad revenue. Most of the analysts expressed the same concerns. “The company is in the midst of a mobile usage transition and we are cautious on Facebook’s revenue trends until new mobile ad revenue models start driving the top line,” Bank of America Merrill Lynch analysts wrote.

Other concerns analysts mentioned included the dual-class stock structure that gives CEO Mark Zuckerberg majority control over the company, and Facebook’s lack of (official) presence in the huge market that is China.

 

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